Emerging Economies’ Demographic Challenge

Population aging is often cited as a major economic challenge for the developed world. But shifting demographics pose an even greater threat to the growth prospects of many emerging economies, and only far-reaching productivity-enhancing reforms can ensure continued gains in prosperity.

WASHINGTON, DC – Population aging is often cited as a major economic challenge for the developed world. But a new report from the McKinsey Global Institute (MGI) shows that shifting demographics pose an even greater threat to the growth prospects of many emerging economies.

Over the last 50 years, the world's 1.6% annual population growth fueled a surging labor force and a rapid increase in GDP in many emerging economies. Employment more than doubled in China and South Africa, and at least tripled in Brazil, India, Indonesia, Mexico, and Nigeria. In Saudi Arabia, employment increased almost nine-fold.

But, with population growth slowing, average annual employment growth in emerging economies is expected to drop from 1.9% to 0.4%. In absolute terms, the decline will exceed that of developed economies, where annual employment growth is expected to fall from 0.9% to 0.1% the coming years. In most economies, employment is expected to reach its peak within the next half-century; in China, the labor force could shrink by 20% over this period.

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